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Coal block auction in February; govt aims to keep lid on power tariff

The much-awaited auction of coal blocks is likely to be held in the second week of February, but power tariffs are unlikely to shoot up following bidding as the government has put in place norms to regulate the bid war.

business Updated: Nov 20, 2014 02:13 IST

The much-awaited auction of coal blocks is likely to be held in the second week of February, but power tariffs are unlikely to shoot up following bidding, expected to be intense, as the government has put in place norms to regulate the bid war.

As per the draft rules of bidding for the first set coal blocks from among the 204 whose allocations were cancelled by the Supreme Court in September, the mines will be allocated only for specified end-use like power generation and there will be a cap on number of blocks a company can bid for.

"It is our endeavour that power tariff does not rise due to auction. We are in the process of evolving a system, which has not been finalised yet. It is not a revenue maximising process... It is essential to keep a lid on tariff," coal secretary Anil Swarup said, unveiling the draft rules.

Swarup also said the government will ensure that the blocks are not monopolised by one entity. "To avoid monopoly, a cap on the number of blocks a company can bid for will be put in place."

"The bid due date would be around February 11. We hope to finalise the technical bid qualification by March 3. The auction will get moving on March 6 and we hope that by March 16, we should be able to issue a vesting order," Swarup told reporters in Delhi.

Government plans to auction 72 coal mines in the first lot. Of these, 42 are ones which are currently under production and where Supreme Court had allowed continuation of operation till March 31. The remaining 32 are ones which are ready to produce.

Request for proposal for these will be issued on December 22, 2014 and due date for technical bids is February 11.

Technical bids will be opened on March 3 and e-auction or price bidding will start on March 6. The government hopes to allocate the mines by March 16.

The 42 producing mines currently produce about 90 million tons a year of coal and the remaining 32 ready-to-produce mine have potential of another 120 million tons.

Successful bidders, besides paying the winning price for the coal block, will also pay a fair value for the plant and equipment already installed at these mines.

Existing operator of these mines will get the fair value of his investment but will not have first right of refusal or the right to match the best price, he said.

By March-end, Swarup said, the government was hopeful of putting in position "some mechanism which will take over these mines," while the request for proposals will be finalised by December 22 this year.

The government, which put out the draft rules on coal blocks auction in the public domain today, has sought stakeholders' comments by November 24.

"We are in the process of formulation of the rules ...Rules that have been put on the portal are not final rules. We have put them ahead of the finalisation. As a part of the whole process being very transparent, we would want the stakeholders to comment on what we propose to do, so that we can take their comments also into account before finalisation," he said.

"One feature essential in 74 coal blocks which would be either alloted or auctioned is that there has to be specified end-use and coal can be used only for the end-use plants."

There would be two broad categories in these 74 blocks. One category will relate to such mines which will be put to auction and the other will relate to such blocks which will be alloted to the state or state entities.

"One set of blocks would be put for auction where even state entities can participate. The second set of blocks will be for allotment for state entities where again end-use has to be clearly specified," Swarup said.

He said that each of the entities which go in for auction will have to furnish an additional levy of Rs 295 per tonne by December, as has been mandated by the Supreme Court.

"The ordinance as the proposed rules also allow a limited swapping by an entity for the same end-use for a plant which may be situated elsewhere but the end-use has to be same. We have also drawn a little bit of road map which is as to how we will go about doing this e-auction," Swarup said.

The e-auction of coal blocks will have a two-stage tender process of technical and financial bids, according to the draft rules framed to operationalise the provisions of Ordinance brought for bidding of mines said.

The e-auction of coal blocks had got the approval from President Pranab Mukherjee, who promulgated an Ordinance in the backdrop of Supreme Court order quashing 204 coal blocks to companies since 1993.

The Centre has already appointed joint secretary, coal, Vivek Bhardwaj as the Nominated Authority.

A company engaged in specified end-use, including a firm having a coal linkage whose application is pending shall be eligible to bid for any schedule II mine provided it has made an expenditure of 80 per cent of the total project cost of specified end use plant, according to the draft rules.

A company engaged in specified end-use shall be eligible to bid for any Schedule III mine provided it has made an expenditure of 60 per cent of the total project cost of specified end use plant.

Schedule II coal mines means the 42 blocks out of 204 cancelled ones and Schedule III coal mines refer to 32 coal mines.

The draft rules say that the Centre may also allot any Schedule 1 coal mine (the cancelled 204 blocks) to a company, which has been awarded a power project based on competitive bid for tariff, on recommendation of the Power Ministry.

The draft rules, which seek stakeholders comments by November 24, say the Centre will issue an order to the Nominated Authority specifying which coal mines are to be auctioned and which are to be allotted to the government companies.

In case of allotment to government companies, the progress of development of coal blocks by the applicant in the past, financial and technical capabilities of the applicant, status of preparedness of end use plant, per-capita power availability in the state of the applicant, its current and future requirements etc. will be the factors for selecting the allottee.

The nominated authority may also specify the maximum number of mines and/or coal reserves that may be allocated to one or more persons.

The rules provide that the manner of determination of compensation, priority of disbursal of proceeds arising out of land and mine infrastructure, determination of claims and manner of disbursement.

Additional levy with respect to the coal extracted till September 24, 2014 shall be deposited by the prior allottee with the Central Government on or before December 31, 2014 and Additional Levy with respect to the coal extracted from after September 24, 2014 till March 31, 2015 shall be deposited with the Central Government on or before June 30, 2015.

Also, a successful bidder or allottee may utilise coal mined from a particular coal mine in any of its other similar end use plants by giving a prior intimation to the Central Government in writing and the Central Government may impose such terms and conditions as may be found necessary.